China Representative Office Registration and Maintenance Guide (1) - Overview

1. Nature of Representative Offices

Representative Office (RO), also known as Permanent Representative Office or Resident Representative Office, is an office of a foreign enterprise that is set up in China to liaise with Chinese businesses and customers on behalf of the RO's home company. Establishment of an RO is subject to approval by the relevant authorities under Chinese law.

Although ROs are not allowed to directly conduct business, there are still certain benefits that foreign enterprises can gain from setting up and legally registering a Representative Office. Perhaps the most important reason is that an RO can help its home company to generate income from sources inside China. Other possible benefits of setting up an RO include: ROs can function as a liaison between the home office and related industries in China; ROs can conduct market research and do preparatory work for their home company to possibly directly enter into the Chinese market. Other benefits include ease of obtaining Chinese visas for employees, easier direct communications, etc.

Since China first started allowing the establishment of trading WFOEs, some foreign enterprises, especially those that conduct trade with China, have elected to set up a trading WFOE instead of an RO. From a total business operations standpoint, setting up a WFOE to directly conduct business in China is much more efficient than merely having an RO acting as a middleman in China. We can discuss the options with you to determine which type of business registration makes the most sense for your specific situation.

Compared to registering a WFOE, registering an RO is relatively faster and easier because there are fewer approval authorities involved and there are fewer documents required. The main benefit of registering an RO compared with a WFOE is that for an RO, there is no Registered Capital requirement, whereas a WFOE must have physically deposited a minimum amount of registered capital in a Chinese bank (currently RMB100,000; RMB30,000 after January 2006).

2. Key Points of Registering an Representative Office

Requirements for foreign enterprises

- Foreign enterprises that want to set up a Representative Office in China must be an officially registered business in its home country or region. A copy of the official Registration Certificate issued by the foreign enterprise's home country is required in order to prove that it is properly registered in its home country. The Chinese government removed the regulation that formerly required the home-based business to have been in existence for no less than one year in April 2004. Now even a foreign enterprise that is newly registered in its home country can register an RO in China.

- A bank reference letter is required from the country or region where the enterprise headquarters is based. The bank reference letter should state the name of the foreign enterprise, that the foreign enterprise has maintained bank accounts with this particular bank, and that the foreign enterprise is in good standing with the bank (e.g. no large outstanding debts, etc.

Requirements for the Representative Office

- A Chief Representative must be designated for the RO. An appointment letter that specifically designates someone as the RO's chief representative will be required. The chief representative can be an expatriate or local Chinese.

- An office site in China is required for the RO. A lease agreement and the landlord's official documents will be required. The lease term must be for no less than one year.

Representatives of the Representative Office

- There must be at least one Chief Representative appointed for an RO.

- All other foreign employees of the RO can be designated as "representatives". A formal appointment for each representative will be required. Expatriates can only be representatives; local Chinese can either be designated as representatives or as local employees.

- All expatriate representatives are required to apply for Working Cards and Work Permits from the relevant authorities.

- New representatives can be added after the initial RO registration has been completed.

Lifespan of an Representative Office

An RO may register for existence as a legal entity for between one and ten years, depending on the needs of the foreign enterprise. (The maximum lifespan was only three years prior to changes in the law in April 2004.)

Representative Office's Bank Accounts

An RO is allowed to open both a foreign currency account and an RMB account. The foreign currency account is used for receiving funds from its parent company in the home country. The RMB account is used for expenses in China. Normally all money deposited into the RMB account must come from its foreign currency account via a bank transfer, i.e. the RMB account cannot receive any money from any other sources.